BlueCrest, Pine River Rise as Prop Trading Wanes

By Brendan Conway

Squeeze one end of the rubbery balloon that is Wall Street and the other side simply swells up. That is the gist of this Bloomberg News story by Lisa Abramowicz, Miles Weiss & Christine Harper.

As giant Wall Street banks’ proprietary trading divisions scale back business amid new regulations, hedge funds involved in similar strategies are picking up the slack:

Hedge funds using debt-trading strategies honed on Wall Street are expanding at a record pace as they profit from risks big banks are no longer taking.

BlueCrest Capital Management LLP doubled its New York staff in the two years through December, while Pine River Capital Management LP increased its global workforce by one-third in 2012. Hedge-fund firms are hiring from companies such as Deutsche Bank AG (DB), Barclays Plc (BCS) and Bank of America Corp. (BAC) as their credit funds have attracted $108 billion since 2009, data compiled by Chicago-based Hedge Fund Research Inc. show. …

“The regulatory posture in the U.S. and in Europe is unequivocal: They want to transfer risk to the shadow-banking system,” said Roy Smith, a finance professor at New York University’s Stern School of Business and former Goldman Sachs Group Inc. (GS) partner. “It does come at the cost of interfering with some financial capabilities of the large banks to function as market makers and arbitrage providers.”

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Chris Dieterich has covered the U.S. stock market for The Wall Street Journal and Dow Jones Newswires. He is a graduate of Regis University and the Missouri School of Journalism.